Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Monday, September 16, 2019

THE SMALLEST SALABLE PATENT PRACTICING UNIT AND COMPONENT LICENSING: WHY $1 IS NOT $1

Nicolas Petit, Liege explores why THE SMALLEST SALABLE PATENT PRACTICING UNIT AND COMPONENT LICENSING: WHY $1 IS NOT $1.

ABSTRACT: The smallest salable patent pricing unit (SSPPU) is a valuation method used as a preliminary step toward the calculation of fair, reasonable, and nondiscriminatory royalties for licenses over standard-essential patents (SEPs). Under SSPPU, royalties should reflect the value added to the smallest salable component implementing the patented invention. In this paper, we discuss policy-making proposals to convert SSPPU into a pricing rule that not only assists the assessment of SEPs’ added value but also forces the specification of royalties terms as a share of component costs in SEP licensing negotiations. We call this new rule SSPPU+ and we show that it distorts the distribution of surplus between SEP owners and implementers by laying down a revenue cap on standardized technologies. Therefore, a change in the royalty basis is not neutral and $1 is not $1. Furthermore, SSPPU+ imposes uniform pricing of SEPs across different industries and does not allow SEP owners to take advantage of complementarities between technologies. This pleads against a generalization of SSPPU+ at early standardization and negotiation stages.

https://lawprofessors.typepad.com/antitrustprof_blog/2019/09/the-smallest-salable-patent-practicing-unit-and-component-licensing-why-1-is-not-1.html

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